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Business Responsibility and Economic Behavior* William J. Baumol Under pressure from many sides, corporate managements have been quick to assert their agreement in principle to the proposition that the firm should concern itself with the ills of society, particularly as those ills have begun to seem increasingly threatening. After all, the modern firm has shown itself to be one of the most efficient economic instruments in history. Since the beginning of the industrial revolution it has increased real per capita incomes perhaps twenty-fold, incredible though that may seem. It has doubled and redoubled and redoubled again the energy placed at the service of mankind, and has achieved an increasing productivity of human labor which is astonishing both in its magnitude and its persistence. With such a record, what other institution can be better adapted to deal with the difficult economic problems that underlie so many of our social issues? I will argue that this line of reasoning is fundamentally valid, but not if interpreted and implemented in the obvious manner which generally seems to be proposed by both business and its critics. The proposal seems to be that industry should exhibit a massive outburst of altruism, modifying its goals to include in addition to the earning of profits, improvement of the environment, the training of the unskilled, and much more. As John Diebold has put the matter in a recent address: "[There is the danger that] ... business as 'good corporate citizen' *This paper originally appeared in Managing the Socially Responsible Corporation, edited with commentaries by Melvin Anshen, Project for Studies of the Modern Corporation (Macmillan, New York, 1974). Reprinted by permission of the Trustees of Columbia University. 45 46 • ALTRUISM, MORALITY, AND ECONOMIC THEORY [will] start to view itself, or be viewed by others, as an all-purpose institution that should right all social wrongs. (If you added together the rhetoric in this field you wouldn't fall far short of business being called upon to do just this!)."J I will argue that any such undertaking is undesirable even if it were achievable. Moreover I will give reasons why it cannot be expected to work-why the task undertaken on such a basis is likely to be managed badly. Tokenism is the natural product of such a process. Indeed, not only is business likely to prove inefficient as a voluntary healer of the ills of society, but the attempt to play such a role may well have adverse effects on its efficiency in the fields where it now operates and in which its abilities have been demonstrated so strikingly. I will argue that the primary job of business is to make money for its stockholders. This does not mean that the best way to do everything is as it is done now. On the contrary, society has every reason to ask business to be much more careful in its use of the environment, to do much more to protect the interests of consumers, etc. But we neither should nor can rely on "voluntarism" for the purpose. If we want business to behave differently from the way it does today we must change the rules of the game so that the behavior we desire becomes more profitable than the activity patterns we want to modify. If pollution is made expensive enough, we will be treated quickly to a spectacular display of business efficiency in reducing emission rates. If the production of unsafe products is made sufficiently costly, one can be confident of a remarkable acceleration in the flow of innovations making for greater safety. Business will then do the things it knows how to do best and society will be the beneficiary. Under the terms of such an approach, is there no role for "business responsibility"? Is the firm simply to pursue profits and no more? That is not quite enough. Responsibility on the part of business, from this viewpoint, has two requirements: (1) when appropriate changes in the rules are proposed by the duly constituted representatives of the community, responsible management must refrain from efforts to sabotage this undertaking; (2) business should cooperate in the design to these rules to assure their effectiveness in achieving their purpose and to make certain that their provisions interfere as little as possible with the efficient working of the economy. But, by and large, these are just the things businessmen have, in effect, refused to do. DANGERS OF VOLUNTEER "SOCIAL RESPONSIBILITY" The notion that firms should by themselves pursue the objectives of...


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